Mitt Romney would cut millionaires’ taxes, Barack Obama says

A new Obama campaign ad shows those scenes to hammer at the lifestyle differences between struggling middle-class Americans and the Republican presidential candidate. Then it takes aim at Romney’s economic proposals.

"Now he has a plan," the ad says, "that would give millionaires another tax break and raises taxes on middle-class families by up to $2,000 a year."

We know from our previous reporting on Romney’s tax plan that it offers across-the-board cuts, including for the very wealthy. But a new independent study offers broader perspective on how taxpayers at all income levels would be affected by Romney’s plan.

So we decided to take a look.

Romney’s tax "plan"

We need to be clear from the start that the problem independent analysts, journalists and fact-checkers have with digging into Romney's tax plan is that much of the "plan" isn't yet known.

• The rate cuts would be paid for without adding to the deficit.
• People at the high end "will still pay the same share of the tax burden they’re paying now."
• Everyone would see tax rate reductions.

He has outlined specific tax cuts on his campaign website. They include: cutting marginal rates by 20 percent on a permanent, across-the-board basis; eliminating interest, dividend and capital gains taxes for taxpayers earning less than $200,000; eliminating the estate tax; and repealing the Alternative Minimum Tax.

Romney would also cut the corporate rate to 25 percent.

To offset those cuts, Romney has hinted that he would eliminate some common tax write-offs and deductions for people with high incomes.

The effect of Romney's plan

Knowing all that, the Tax Policy Center, a joint project of the Urban Institute and Brookings Institution that evaluates tax proposals submitted by presidential candidates, examined the effect of Romney’s tax rate cuts combined with the elimination of several common tax deductions. Those include the mortgage interest deduction, charitable giving deduction and the exclusion for health insurance. The center published its findings on Aug. 1, 2012.

To try and keep with Romney's guiding principles, the authors eliminated deductions and write-offs -- starting with the deductions for top earners first -- until they came up with enough revenue to offset the $360 billion in tax cuts that are part of Romney's plan.

They determined that people who earn $1 million or more in taxable income would see an average net tax decrease of $87,117. They’d save $175,961 from Romney's tax cut, but lose $88,444 in deductions.

"They would still get a tax cut," said Adam Looney, one of the authors. "The dollar value of the tax cuts is just way bigger than the mortgage interest and other deductions. There’s no way to implement this plan in a way that doesn’t result in a pretty big tax cut for that group (those making more than $1 million)."

People who earn between $500,000 and $1 million would see a cut of about $17,000, and taxes for people with incomes between $200,000 and $500,000 would decrease by about $1,800, the study found.

But to make Romney's plan revenue neutral, deductions would also have to be removed for people with incomes below $200,000, and the effects of that would be significant, the study found. In fact, the elimination of the deductions would mean outright tax increases for everyone with incomes below $200,000. People with taxable income between $50,000 and $75,000, for example, would see an average net tax increase of $641. They’d save $984 from Romney's rate cut, but lose $2,672 in write-offs.

The authors specifically noted that taxpayers with children whose income is below $200,000 would see their taxes go up by an average of $2,041 -- the figure highlighted in Obama’s ad.

The reason for the increase is that the most popular tax breaks heavily benefit middle- and lower-income families, the 95 percent of the population earning less than $200,000 who carry mortgage debt and use employer-provided health insurance.

And though Romney has suggested he would focus on taking the deductions away from the wealthy, the study concluded that alone would not make up the difference of the revenue sacrificed when rates are slashed.

"Somebody has to foot the bill for those tax cuts," Looney said. "You have to tap into middle- and lower-income households."

Bottom line: the study found that Romney couldn't keep all his goals based on what we know about his plan.

Romney campaign’s response

When the study appeared online, the Romney campaign posted a response on its website that did not specifically address the discrepancy.

"President Obama continues to tout liberal studies calling for more tax hikes and more government spending. We've been down that road before – and it's led us to 41 straight months of unemployment above 8 percent," said Romney spokesman Ryan Williams.

Looney is a senior fellow in economic studies at Brookings who has a Ph.D. from Harvard University. He served on Obama’s Council of Economic Advisers in 2009 and 2010. William Gale, another of the authors, is vice president of Brookings and director of its economic studies program. He served on President George H.W. Bush’s Council of Economic Advisers.

Lanhee Chen, the Romney campaign’s policy director, later added in a press release that the study ignored the corporate tax rate cut Romney proposes and his deficit reduction plan.

"These glaring gaps invalidate the report’s conclusions," Chen said.

The Romney campaign said that the study ignored the assertion that lower tax rates will grow the economy -- which they say will translate into more tax revenues. That will help make the plan revenue neutral even with lower overall tax rates.

Spending cuts, likewise, could help balance the tax cuts without having to raise taxes on people making less than $200,000. The study, for the record, did consider that possibility but concluded it was impossible to evaluate the effect of spending cuts without knowing what would be cut. They also noted that "government spending tends to benefit low- and middle-income households."

We find nothing in the study that distorts Romney’s proposals. It makes assumptions favorable to Romney, namely that his plan would lead to greater economic growth and raise revenues. The Tax Policy Center, whose director is another former adviser to Bush, is well-respected for its unbiased work, and even the Romney campaign praised it in November 2011 for offering "objective, third-party analysis."

Our ruling

Obama said Romney is proposing a tax plan "that would give millionaires another tax break and raises taxes on middle class families by up to $2,000 a year."

The claims are based on a study by the Tax Policy Center, which used what Romney has said about his tax plan and attempted to calculate outcomes for different groups of taxpayers.

The study prioritizes the idea that the plan would be revenue neutral. In that scenario, millionaires lose deductions, but the lower rates would still decrease their tax bill by an average of $87,000.

Middle-class taxpayers would see lower tax rates, too, but the loss of exemptions and deductions would hit them harder. People making $200,000 or less a year would see their taxes rise by an average of about $2,000.

The study is making the point that Romney’s plan is untenable: to cut rates that much without adding to the deficit, something has to give. It necessarily makes some assumptions, and therefore these conclusions are not definite as long as the details of the plan remain unknown. For that reason, people should be cautious in calling this Romney's plan.

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